Refinance question

[lavagirl]

I'm pretty sure I have enough equity in my house to refinance to get rid of pmi. I can do a 30 year loan with a p+i  payment of $1615 @ 3.875 interest or 15 year loan with a p+i payment of $2210 @ 3.125 interest. I don't know which to choose? My current payment is $1947, so the 15 year loan won't be much more.  But, having a lower payment would let me pay off $12 k in student loans faster and I could put more in my retirement account.  What would a mustachian do?? Thanks!

Edited to fix loan years.

[Jack]

First of all, I assume you got those payments backwards: the payment on the 15-year should be higher than the one for the 30-year.

Second, I'd go for the 30 year and invest the $2210 - $1615 = $595/month difference. You should come out about 7% - 3.125% ~= 4% ahead in the long run.

(Note: whether to invest the difference or use it to pay down your student loan depends on the student loan's interest rate.)

[neo von retorch]

I think the way the payments are in a sentence just confuses the reader (i.e. Jack ;))

Current Loan: 30 year @ x.xx% => $1947 / month

30 year @ 3.875% => $1615 / month
15 year @ 3.125% => $2210 / month

Oh - just saw you edited and fixed some thing. Anyway, as Jack said... some (maybe most) would point out that in the long-term, investment returns will likely outweigh interest costs, so stretch out your loan, since 3.875% is still a great rate, and you're (more than) likely going to make more from investments.

[slugline]

I'm in favor of going with the 30-year mortgage because of the flexibility it gives you. I'll also assume the student debt is at a higher-interest rate, so use the difference to more aggressively pay that student loan down now.  Once that's gone, you will be able to accelerate your retirement savings.

A good 30-year mortgage should not penalize you for pre-payment (check the fine print). So after the student loan is gone, another conservative alternative you should have is accelerating the paydown of the mortgage principal  later, effectively scheduling yourself a 15-year mortgage with almost as good of an interest rate as the actual 15-year choice you have right now. And if your situation changes, you could always dial back to your 30-year payment. (Flexibility!) If you choose the 15-year loan now, you are committed to that higher minimum monthly payment unless you refinance again.

[RWD]

I'd recommend the 30 year mortgage to facilitate paying off the [presumably] higher interest student loans and maxing your retirement accounts.

[lavagirl]

The student loan is at 3.6% variable and I have about 4 years left to pay it. Thanks everyone!

[Jack]

The student loan is at 3.6% variable and I have about 4 years left to pay it. Thanks everyone!

In that case, the $595 is better off invested in the stock market, unless your crystal ball says that interest rates are going to (significantly) increase within four years.